Brexit’s shockwave hits Africa

The decision by a majority of British citizens to leave the European Union has already started to hit Africa and more is to come.

Only a few days after the 23 June, the result of the British referendum has started to have immediate consequences in Africa. Indeed, the depreciation of the sterling pound by 10% is already affecting remittances by African workers in the United Kingdom to their families. Estimates vary but according to the highest ones, the most hit country would be Nigeria, which receives annually the equivalent of US $ 3.8 billion, according to information compiled by The Guardian of London.

Another country, which is affected is Somalia. Indeed, according to Oxfam, the UK accounts for a significant portion of remittances to this country, which are estimated at between $1bn and $2bn per annum. Britain’s main trade partners in Africa, such as Nigeria, South Africa and Kenya, are also beginning to be affected, points out a Belgian banker. South African Rand fell by 7% after the 23 June.
In Brussels, Commission officials are reluctant to comment on the impact of the Brexit. For the time being, there is no legal impact as long as the United Kingdom does not invoke Article 50 of the Lisbon Treaty, which sets the rules for the divorce, tells Southworld, a Commission spokesman. In the mid-term, the impact will depend on the agreement about the conditions of Britain’s exit from the EU which will have to be negotiated during two years at least since the negotiation period can be extended.

For the time being, however, things will continue as usual, says European Investment Bank (EIB)’s spokesman, Richard Willis. Accordingly, “the United Kingdom will remain a shareholder of the EIB unless and until any decision to change the shareholder structure is taken by the EU Member States”. This will likely be discussed as part of the Agreement on the UK’s withdrawal from the EU, he says. The stakes are high: indeed the UK has a 16.11% shareholding in the EIB, the same as France, Germany and Italy. Yet the matter is confused since the EIB Statute does not contain provisions for shareholders leaving the bank. The EIB also manages the EU’s Investment Facility, a revolving fund which received an additional allocation of EUR 1.3 billion for the 2014-2020 period, which extends loans for projects in the African, Caribbean and Pacific countries (ACP). The Bank has also to spend up to EUR 2.5 billion from its own resources to finance infrastructure and energy projects and support the private sector in the ACP countries. In addition, four North African countries (Algeria, Egypt, Morocco and Tunisia) should benefit alongside with other Mediterranean countries of EUR 10 billion of loans from the Euro-Mediterranean Investment Partnership Facility.

The UK also contributes 14.8% or EUR 4.5 billion to the European Development Fund (EDF) which should finance a total EUR 30.5 billion in the ACP countries. Britain’s exit from the EU also means that the UK will not engage in the discussions for the successor agreement which are scheduled in 2018 to determine the nature of the future cooperation between the EU and the ACP after the end of the current Cotonou agreement signed in 2000 which expires in 2020. Exit negotiations should clarify whether or not the UK will continue to pay its contribution to the EU budget and to the EDF until the end of 2019, says Andrew Sherriff, Head of European External Action programme at the Maastricht-based European Centre for Development Policy Management (ECDPM). Yet, at any rate, there is no doubt this source of funding will be extinguished in 2020. (F.M.)